Value Added: Profits have a place at this nonprofit

Like it or not, businesses do not exist to create jobs. They exist to make profits for their owners and shareholders.

Goodwill of Greater Washington, known for its chain of 13 local thrift stores, works differently. One half of the nonprofit group’s mission is to employ people. The other half is to make profits — known as “surplus” in the nonprofit world — so the money can be used to train disadvantaged and disabled people for the job market.

Its business model works this way: Goodwill stores accept donations of used clothing, furniture and household items. Employees sort the good stuff (furniture generates the biggest profit margins) from the garbage (lots of that). Items fit for sale are marked with a price tag and placed on the store floor.

The company also has a business maintaining government facilities, including janitorial, electrical, and heating and air conditioning.

Goodwill this year expects to gross around $31 million in this region — $19 million from the stores and $12 million from its janitorial business — and produce a $1.9 million surplus. Most of that surplus will be rolled back into the nonprofit group’s three training centers, in Arlington, Foggy Bottom and Northeast Washington. The company expects to do even better next year, posting a $2.3 million surplus.

Chief executive Catherine Meloy is unapologetic about the pursuit of profit.

“If you’re not making money, you cannot serve the people or your community,” she said. “If you make money, you can reinvest it in the people you are serving. Our shareholders are our employees.”

Those employees include ex-offenders, single mothers, and people with physical and mental disabilities. Goodwill doesn’t have layoffs. It does fire people, however.

In the eight years since she arrived, Meloy, 60, has turned the finances around and instilled a customer-first culture that could make the late Sam Walton proud. Her approach could serve as a case study for a business-school class on retailing.

“I tell people every day I want us to be the Nordstrom of thrift stores, because it gives people a vision,” said Meloy, who was a top executive at Clear Channel’s Washington group of radio stations before taking the Goodwill job. “If you walk into Nordstrom, the employees come around the counter and give you your bag. That’s their deal.”

Meloy has more than doubled the number of stores, going from six to 13 outlets. The company employs 650 people, compared with 300 when she started. Compensation ranges from $9 an hour for associates to $282,000 for Meloy (which is far less than what she made in the private sector).

The turnaround began when Meloy imported a hard-charging business team from Clear Channel to bring a business culture to the nonprofit group. She hired a new chief financial officer and gave her lots of runway.

Meloy then developed a long-term plan to increase the number of stores as a way to promote the brand — and boost the number of employees. In the process, she remade the shopping experience for customers from top to bottom.

Goodwill hired design firms to change the look of stores. Linoleum was replaced with carpeting. Purple walls were painted off-white. Signage was livened up. Checkout counters were modernized. Employees were asked to wear uniforms, including khaki pants and blue T-shirts, so they were easily recognizable. Store cleanliness was prized.

The result: bright, softer, more inviting stores.

“You won’t spend money unless you are happy to be there,” Meloy said.

Goodwill started paying more attention to store managers, hiring experienced retailers and giving them more autonomy. As the economy declined, Meloy went after experienced store managers who had been laid off.

She also attacked the donation process, which has been under siege by competitors (for-profit and nonprofit) seeking dibs on the used clothing, furniture and accessories that people discard.

Meloy wanted to improve the donor experience. Donation “attendants” who wait outside the stores, accepting goods from drivers who wait in line on a Saturday to drop off their stuff, were taught simple service etiquette such as being polite.

The goal was two-pronged: First, to have employees understand how important the bag and its contents are to the business, and second, to make the experience pleasant so donors would keep coming back. It’s important: More than 1,000 donors will stop at Goodwill’s Glebe Road store in Arlington on a given Saturday.

The “back of the house” sorting process — think of it as the nonprofit group’s version of store “buyer” — was also overhauled. Instead of one person going through a single bag of clothes, Meloy assigned three — allowing people to specialize in things like shoes so that they can separate the wheat from the chaff and know how to get the best price.

“Our job is to make sure we separate the best possible donation out of the bag to put on the floor,” Meloy said.

This year, the Glebe Road store — the chain’s “mothership” — will sell $1.9 million worth of goods, up from $1.6 million last year. The store has between 30 and 35 employees, up from 20 a few years ago. It is one of the busiest Goodwill stores in the country.

“Our employees are our shareholders,” said Meloy. “And our responsibility is to return jobs and job training to our shareholders.”

The company this past year trained 180 disadvantaged and disabled people for jobs in the Washington area, including 10 in Friday’s graduating class, all of whom were placed in jobs.